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March 8, 2010 The Honorable Byron Dorgan Chairman, Subcommittee on Energy and Water Development Committee on Appropriations United States Senate Washington, DC 20510 Dear Mr. Chairman: This isin response to your December 17, 2008, request for a cost analysis of the savings to the Treasury and taxpayers as @ result of the passage on May 19, 2008, of the Strategic Petroleum Reserve Fill Protection act of 2008 (Pub. L. 110-232) Prior to enactment of this legislation, the Strategic Petroleum Reserve (SPR) had planned to acquire crude oil to fill its 727 million barrel capacity by the end of 2008 through a combination of the royalty-in- kind (RIK) exchange program with the Department of the Interior and competitive open market purchases using the available proceeds from the 2005 Hurricane Katrina drawdown sale. Using dollar cost averaging over the five-month period from August through December 2008, the Katrina balance of $584 million would have purchased approximately 7.1 million barrels of lower cost sour crude oil at then-prevailing prices in the U.S. gulf (average $81.98 per barrel). An additional RIK transfer of 12.4 million barrels in the period July through November 2008 would have been valued at approximately $1.1 billion (average $91.74 per barrel). We estimate the total 19.5 million barrels would have had @ combined cost of $1.7 billion in direct expenditure and royalty value forgone to the Treasury. In January 2009, the SPR reentered the market at its lower point in five years to contract for the purchase of $10.7 million barrels with a value of $553 million dollars (average $51.82 per barrel). The increased purchase volume reduced the RIK transfer required to complete fill $8.8 milion barrels over the period April through December 2009, valued at $575 million ($65.19 per barrel). In 2009, we calculate the combined cost for the 19.5 million barrels to be $1.1 billion, or a savings of approximately $600 million compared to what would have been incurred in 2008, The analysis above is summarized in tabular form in the enclosure. If you require further information, please contact me or Ms. Betty A. Nolan, Senior Advisor, Office of Congressional and Intergovernmental Affairs, at (202) 586-5450 Sincerely, James J. Markowsky Assistant Secretary Office of Fossil Energy